Morgan Stanley: Maintains Overweight on Apple after F3Q26, but cracks emerge in margins and Services

Overview

This report reviews Apple, Inc.'s F3Q26 results from Morgan Stanley's perspective. The report believes Apple's demand remains resilient, with active installed base and upgrader counts reaching record highs, iPhone June-quarter revenue up 22% year over year to $54.3B, and Mac revenue up 29% year over year. However, two of the three key pillars of the investment narrative—Services and gross margin—are showing more pronounced pressure, while supply-chain flexibility is also weaker than in the past, suggesting the stock may face pressure in the near term before new catalysts emerge.

Core views

The core view is that Apple's long-term fundamentals remain attractive, including an expanding installed base, FCF up 52% year to date, an accelerating product-release cadence, the upcoming launch of Siri AI, and potential for new form factors. However, the near-term earnings-revision thesis has weakened. Services growth could slow to approximately 9.5% year over year in the September quarter, marking the first time below 10% since the June 2023 quarter. The App Store is affected by mobile gaming, changes in business models, litigation, and shifts in consumer time allocation. On gross margin, memory inflation is driving a September-quarter gross-margin midpoint of approximately 46.5% excluding tariff refunds and could delay a more sustained margin recovery in FY27.

Analysis framework

The report updates Apple's revenue, gross margin, EPS, and valuation by combining reported results, management's September-quarter guidance, Morgan Stanley's model, market consensus expectations, segment growth trends, supply-chain factors, and cost considerations. It also provides bull-, base-, and bear-case valuation ranges through scenario analysis.

Methodology notes

• Valuation methodsMorgan Stanley ModelWare

  Model framework

  Unless otherwise noted, the core financial metrics in the report are based on the Morgan Stanley ModelWare framework.

• Valuation methodsEV/Sales and P/E regression valuation

  Price-target derivation

  The $360 price target is based on a 9.4x CY27 EV/Sales multiple derived from a regression of technology and consumer-platform peers, approximately equivalent to applying a 35x P/E multiple to CY27 EPS of $10.30.

• Consensus expectationsRefinitiv Estimates

  Source of market consensus expectations

  The report notes that consensus data are provided by Refinitiv Estimates and are used to compare company results, guidance, and Morgan Stanley estimates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Apple, Inc. equity / AAPL.O

  Core covered asset

  Strengths

  Record installed base, strong iPhone demand, cash-flow growth, abundant product-form-factor and AI catalysts, and substantial long-term Services monetization opportunity.

  Weaknesses

  Slowing Services growth, no longer significant outperformance by the App Store, memory costs compressing gross margin, and reduced supply-chain flexibility.

  Comparison

  Relative to technology and consumer-platform peers, Morgan Stanley supports its base-case valuation with 9.4x CY27 EV/Sales and approximately 35x CY27 P/E.

  Risks

  Weak consumer spending, lower upgrade rates, rising memory costs, limited AI progress, geopolitics, and App Store regulation.

Key data

• RatingOverweightMorgan Stanley maintains a relatively positive rating on Apple.
• Price target$360.00Previously $364.00; modestly lowered this time.
• Current share price$333.43Closing price as of 2026-07-30.
• FY27 EPS estimate$10.00Lowered from $10.39 after the earnings release.
• CY27 valuation EPS$10.30CY27 EPS used to derive the price target.
• June-quarter iPhone revenue growth22% Y/Y to $54.3BA quarterly record, indicating that demand remains strong.
• September-quarter Services growth guidanceApproximately 9.5% Y/YBelow 10%, affected by foreign exchange and slowing App Store growth.
• September-quarter gross-margin midpoint excluding tariff refundsApproximately 46.5%About one percentage point below market expectations, with memory costs the primary pressure.
• F4Q26 market consensusRevenue $114.9B, GM 47.4%, EPS $2.01Pre-call consensus expectations listed in the report.
• F4Q26 Morgan Stanley expectationsRevenue $121.3B, GM 46.8%, EPS $2.12Pre-call Morgan Stanley estimates listed in the report.

Impact & implications

For investors, Apple's medium- to long-term growth story has not broken, but near-term catalysts and the earnings-revision path are becoming more dependent on iPhone 18/Foldable pricing, Siri AI execution, international regulatory approvals, and improvements in the supply chain and memory costs. If Services reaccelerates, AI features achieve broader distribution, and the iPhone upgrade cycle improves, the stock should retain valuation support. If memory costs continue to rise, price increases create demand elasticity, the App Store remains under pressure, or AI monetization falls short of expectations, FY27 margins and valuation multiples could face further pressure.

Risks

• Supply constraints limit September-quarter growth in iPhone, Mac, and iPad.
• Rising memory costs pressure product gross margins and could delay FY27 margin recovery.
• Services growth slows, with the App Store affected by mobile gaming, changes in business models, litigation, and shifts in user time allocation.
• Higher iPhone prices could create demand-elasticity risk and extend replacement cycles.
• Siri AI and Apple Intelligence commercialization remain at an early stage, with uncertain revenue and computing-cost implications.
• Geopolitical tensions and tighter App Store regulation could affect growth and margins.

What to watch

• The early-September iPhone launch event and disclosure of iPhone 18/Foldable pricing.
• User feedback, developer adoption, and conversion to higher-tier iCloud+ subscriptions following the fall launch of Siri AI.
• Regulatory-approval progress for Apple Intelligence in the European Union and China.
• Whether iPhone build plans are revised upward and whether the upgrade cycle begins to shorten.
• Whether Services revenue reaccelerates, particularly trends in the App Store and mobile gaming.
• Whether memory prices and product gross margins improve in the December quarter.